executive summary: fostering organizational innovation...

Running Head: FOSTERING ORGANIZATIONAL INNOVATION 1

Executive Summary: Fostering Organizational Innovation

Daniel Houston

Nikki Batchelor

Sunil Nanjundaram

Suzanne Larson

Wayan Vota

George Washington University School of Business

FOSTERING ORGANIZATIONAL INNOVATION 2

Fostering Organizational Innovation

Organizational innovation is a fundamental source of value creation for a

company, and key to its long-term survival. Leaders can foster organizational innovation

by creating an open environment within the organization, but research also shows that

employee motivation is a significant driver for innovation. Executive management can

foster organizational innovation through transformational leadership where innovation is

rewarded and mistakes are tolerated. Companies should invest in creating a corporate

culture that fosters innovation among all of its employees since it can directly lead to

growth and help ensure a company’s survival.

Both Harvard Business School professor Theresa Amabile (1998, p. 123) and the

Organisation for Economic Co-operation and Development (2005) agree that

organizational innovation is the successful implementation of a new and creative

organizational method in a company’s business practices, workplace organization or

external relations. Newell argues that the innovation doesn't have to be new to the world,

just new to that organization (2010), which creates significant space for organizations to

implement new, innovative, practices.

Innovation is an essential component of any successful organization as it ensures

the continual generation of new ideas. Booz Allen Hamilton (2005, p. 1) says that

innovation is a fundamental source of value creation in companies and an important

enabler of competitive advantage. It is a key survival tactic that companies should use to

remain relevant and at the cutting edge of their industry. E. Cefis and O. Marsili (2005,

p. 1168) find evidence of an "innovation premium" - an 11% higher survival time for

innovative firms and companies that are process innovators gain a 25% increase in


survival time. Hage (1999, p. 598) takes it further and states that a country's economic

development, new employment opportunities, and positive balances of trade largely

depend on the continued introduction of new products, services, and administration,

putting organizational innovation at the center of protecting a nation's standard of living.

With that backdrop, organizational innovation should be the central aspect of company (if

not national) culture.

Evidence shows that many companies are beginning to recognize the importance

of fostering innovation. The Wall Street Journal (2012) found that companies mentioned

some form of the word "innovation" 33,528 times last year in annual and quarterly

reports filed with the Securities and Exchange Commission, a 64% increase from five

years before that. Innovation is an essential component of a successful business strategy,

and companies are trying to label themselves as innovative when reporting to the public.

Organizational innovation starts at the individual level. Daft (1978, p. 206) found

that innovations are often developed and proposed by individuals in an organization who

are the experts in a particular task domain, and Raath (2012) found that innovation cannot

be prescribed or delegated to these experts, it must come from their personal sense of

passion for experimentation and innovation.

Individual motivation for experimentation can be increased by good leadership to

help foster a greater sense of innovation within an organization. Managers can increase

the intrinsic motivation employees have towards innovation by matching employees with

assignments that are challenging and allowing them the freedom to innovate solutions to

those challenges (Amabile, 1988, p. 76). Managers can also increase the cross-


fertilization of ideas, which Hage (1999, p. 604) found is the most important indicator of

organizational innovation; the diversity in professional specialties of staff.

Managers themselves also play an important role in organizational innovation.

When employees work with supervisors who are also intrinsically motivated to innovate,

the collective innovation is increased (Tierney et al., 1999, p. 612). At the organizational

level, overall managerial attitude toward change - a pro-innovation attitude in managers

firm wide - plays a crucial role in the adoption of innovations (Damanpour, 2009, p. 513).

At the executive level, where top managers communicate the organizational

climate, transformational leadership by the CEO can have a direct and positive impact on

organizational innovation (Jung et al., 2003, p. 538). A CEO can create a culture where

innovation is accepted and rewarded and mistakes are tolerated. Even more important for

firm survival is the external cheer-leading role transformational leaders take with

innovations in the marketplace. By championing innovations beyond traditional market

boundaries externally, transformational leaders also ensure the market success of the

innovations (Gumusluoglu, 2009, p. 470).

Therefore, we conclude that there are many factors that lead to organizational

innovation. At the individual level, a predisposition towards innovation and passion for it

is required and at the managerial level, fostering innovation among employees and

exercising transformational executive leadership are critical. Given it’s positive impact

on firm survival and corporate growth, companies should invest heavily in creating a

corporate culture that fosters innovation among all of its employees.


References

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Amabile, T.M. (1988). A model of creativity and innovation in organizations. Research

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Bordia, R., Kronenberg, E., & Neely, D. (2005). Innovation’s ORGDNA. Booz Allen

Hamilton. Retrieved from

http://www.orgdna.com/downloads/InnovationsOrgDNA.pdf

Cefis, E., & Marsili, O. (2004). A Matter of Life and Death: Innovation and Firm

Survival. SSRN eLibrary. Retrieved from

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=650832

Daft, R. L. (1978). A Dual-Core Model of Organizational Innovation. Academy of

Management Journal, 21(2), 193–210. doi:10.2307/255754

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Raath, R. (2012, June 28). When Innovation Fails. Forbes. Retrieved August 31, 2012,

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